(Bloomberg) — The abrupt departure of Intel Corp. CEO Pat Gelsinger offers a new opportunity for the troubled company to consider potential deal options, including scenarios he rejected during his time leading the chipmaker.
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The board has discussed a range of options in recent months, including private equity deals and even a split of Intel’s factory and product design businesses. But Gelsinger was opposed to breaking up the company and instead focused on his plan to restore Intel’s technological lead and become a made-to-order manufacturer for outside customers.
Now that Gelsinger is leaving this week – under pressure from the board – there is an opportunity to reset the conversation. Morgan Stanley and Goldman Sachs Group Inc. have helped the company think through its options, and could find a more receptive audience in new management.
It is also an opportunity for candidates to take another look at acquiring part or all of the company. Qualcomm Inc. has previously expressed interest in a transaction, although nothing got very far, Bloomberg News reports.
“This leadership change increases the likelihood of divestitures,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note on Monday. “Gelsinger was firmly against breaking up the company, but the lengthy and expensive turnaround has tested shareholders’ patience and may force Intel to reconsider.”
Intel’s board evaluated a number of scenarios, including the idea of a breakup, at a critical meeting in September. The discussions followed a disastrous earnings report the previous month, when Intel posted a surprise loss and disappointing sales forecasts.
But Intel pressed ahead with less radical changes, including a pause in building factories in Poland and Germany. The company is also cutting about 15,000 jobs and suspending its decades-old dividend — part of efforts to save money and keep Gelsinger’s turnaround plan on track.
If the new CEO goes ahead with a bigger shake-up, these are deal ideas Intel could revisit:
1. Splitting of factory and product divisions
This would mean completely separating Intel’s factory operations from the more profitable product development unit. Under Gelsinger, the company expanded its manufacturing operations into a foundry – a manufacturer of components for external customers. The idea is to eventually compete with Taiwan Semiconductor Manufacturing Co., a pioneer of the foundry approach.
But Intel has announced only a few major customers for its foundry business, and its high-end chip production isn’t big enough to make the business profitable. Perhaps even worse, sales are down – an ominous sign for a company looking to enter a major new industry segment.
While Intel might be able to find a candidate for its product division, the foundry business would be a harder sell. The largest American chip foundry is GlobalFoundries Inc., which has its own problems. That company has no money or experience running the kind of manufacturing that Intel’s factories were built for.
It’s also unclear whether a new Intel CEO — or the rest of the board — would be willing to dismantle a company that once ruled the chip industry. And the move would complicate Intel’s ability to get $7.9 billion in federal subsidies under the U.S. Chips and Science Act, a law aimed at reviving domestic chip manufacturing.
A representative for Santa Clara, California-based Intel declined to comment.
Bloomberg has reported that Qualcomm was considering a takeover of Intel, but its interest had cooled last week. The complexities associated with the Intel acquisition made a deal less attractive, people familiar with the matter said at the time.
But Qualcomm could consider buying pieces of Intel, such as the product business. Like much of the chip industry, Qualcomm doesn’t produce its own semiconductors. Instead, it designs chips and relies on partners like TSMC for production. Therefore, Intel’s factory operations are unlikely to want.
Broadcom Inc. previously assessed whether to pursue an Intel deal but did not move forward with talks, Bloomberg reported in September. When Broadcom CEO Hock Tan was asked that month if he wanted a chip purchase, he said he had his hands full integrating the VMware purchase.
Any major chip merger would also face regulatory hurdles around the world – something both Qualcomm and Broadcom know well. Broadcom scuttled an attempt to buy Qualcomm after the deal was blocked by President Donald Trump in 2018.
3. Sell Altera
Intel’s Altera unit, which was acquired for about $17 billion in 2015, makes chips that can be reprogrammed for different purposes after production. Intel has been in negotiations to sell part of the company to financial investors, a possible step toward an initial public offering for the unit.
Buyout firms such as Francisco Partners, Bain Capital and Silver Lake Management have studied offers to invest in Altera. However, last month Bloomberg reported that Lattice Semiconductor Corp. was considering making a bid for all of Altera. Lattice is working with advisers and looking for a private equity backer as it explores a potential bid, people familiar with the process said.
Whether or not such a deal goes through, the idea of firing Altera altogether could gain new momentum under a new Intel CEO.
4. An Apollo investment
Earlier this year, Apollo offered to make a billion-dollar investment in Intel. The New York-based company indicated it was willing to make an equity investment of as much as $5 billion, Bloomberg reported in September. But the negotiations did not lead to an announcement.
Apollo has an existing relationship with Intel. The company agreed in June to buy a stake in a company that controls an Intel chip factory in Ireland for $11 billion. That makes it more likely that the partners will hold further talks.
5. A Mobileye transaction
Intel acquired Mobileye, a maker of self-driving technology, in 2017. Although the company went public in 2022, Intel still owns the majority of the company. This situation has the potential to change under a new CEO.
In September, Intel said it does not “currently” plan to divest its majority stake in Mobileye. But Bloomberg reported earlier this month that the chipmaker was considering options for its 88% stake.
Intel could transfer some of its stake into the public market or through a sale to a third party, people familiar with the discussions said. In any case, it’s unlikely to be a winning investment for Intel, which paid around $15 billion for Mobileye. The company currently has a market value of $14.1 billion.
